The Week in Charts (2/27/24)

View the video of this post here.

The most important charts and themes in markets and investing…

1) Unfathomable Growth

Expectations were sky-high heading into the Nvidia earnings report and they were exceeded on all fronts. The growth rate for a company this large is simply unfathomable…

• Revenues came in at $22.1 billion in the 4th quarter, up 265% year-over-year. Nvidia’s guidance for the current quarter: $24 billion, beating estimates by nearly $2 billion.

• Net Income of $12.29 billion was up 769% over the last year and 83x higher than a decade ago.

• Net Profit Margins continued to expand, hitting a record 56% in Q4.

Investors loved the results, driving up Nvidia’s market cap by another $277 billion. That surpassed Meta’s advance earlier this month to become the largest single-day market cap gain in history.

Is Nvidia’s growth story over? Not yet, according to analysts, who are forecasting an increase in annual revenue to $110 billion by 2026, up from $60 billion in the fiscal year that just ended.

Nvidia ($NVDA) has become the number one story stock in the market, replacing Tesla. Its options activity reflects that, with over $20 billion in premiums spent last week. That was more than the other six members of the magnificent seven combined.

Since the start of 2022, Nvidia has gained 168%, far outpacing the S&P 500 (+10%) and other members of the Magnificent Seven.

2) More Market Milestones

Enthusiasm over Nvidia’s results lifted the broader market.

The S&P 500 ended the week at another all-time high, its 13th of the year.

It also crossed above 5,100 for the first time.

The Dow extended its gains as well, surpassing 39,000.

3) Amazon in, Walgreens Out

Speaking of the Dow, there’s been a change in the index.

Amazon is in and Walgreens is out.

Apparently, it only took a 178,600% gain since its IPO for Amazon to get the attention of the Dow committee.

Why is Walgreens ($WBA) being kicked out?

Poor performance. The stock lost 58% during its tenure in the Dow. Interestingly, the company it replaced (General Electric) gained 86% during this time. This is actually not that uncommon, as we tend to see mean reversion after a company is added/removed from the index.

What is Amazon’s weighting in the Dow?

2.9%, making it the 17th largest holding. The Dow uses prices instead of market cap to determine its weights, making UnitedHealth the largest holding because it has the highest price per share. If market cap weights were used, Amazon would be the 3rd largest holding with a weight of 12.7%.

Interestingly, despite its unusual methodology, the Dow has been highly correlated to the cap-weighted S&P 500 over the years (.95 monthly correlation since Jan 1998). And perhaps more interestingly, the price weighting has not hurt performance, with the Dow ETF ($DIA) actually outperforming the S&P 500 ETF ($SPY) since its inception in January 1998).

4) 34 Years and a New Nikkei High

It took 34 years, but the Nikkei 225 Index is finally back at an all-time, surpassing its prior high from December 1989.

At its 1989 peak, Japan had a CAPE ratio of 78, making it one of the biggest bubbles in financial market history. For comparison, the US stock market was trading at a CAPE of 18 at the time.

The lessons for investors? Diversify, diversify, diversify. This is always sound advice but more so during an epic bubble. While the Nikkei had decades of stagnation, Japanese investors would have benefitted greatly from this principle as the S&P 500 gained over 2,800% (10.4% annualized).

5) Recession Called Off

The Leading Economic Index declined for the 22nd month in a row, the longest down streak since 2007-08.

However, the creator of the index (The Conference Board), who previously predicted a recession would begin in Q1/2/3/4 2023 and then Q1/2 2024, is no longer forecasting a downturn.

Why?

6 out of the 10 components in their index have turned positive over the last 6 months, led by the surging stock market.

6) Rivian and the New Reality

When Rivian ($RIVN) went public in November 2021, it was losing billions of dollars.

It’s still losing billions of dollars today (crazy stat: it lost $43,373 for every vehicle sold in the 4th quarter).

So was its market cap at $153 billion in November 2021 and just $9 billion today (-94%)?

The new reality in which investors care about profits again.

The same is true for many companies in the EV space that have seen stunning declines from their bubble peaks…

7) Housing Stagnation Continues

US Existing Home Sales fell 2% over the last year, the 29th consecutive YoY decline. That’s the longest down streak since 2007-2009.

The annual rate of 4 million homes sold is still below the covid lows.

The biggest factor limiting activity continues to be a lack of affordability. With mortgage rates moving higher to start the year (6.9% on 30-year), that remains a huge impediment to many buyers.

It also continues to keep sellers on the sidelines, driving inventory lower and prices higher. The median price of an existing home rose 5% over the past year.

8) Cheaper Used Cars

Wholesale used car prices are now at their lowest levels since March 2021, down 22% from the peak.

On the retail side, Tesla models continues to show the largest declines.

The average price of a used Tesla has now declined 19 months in a row, moving from a record high of $67,900 in July 2022 to a record low of $32,880 today. That’s a 52% decline.

9) A Few Interesting Stats…

a) US consumers spent 11.2% of their disposable income on food in 2022, the highest share since 1991.

b) The price of Lithium is back to mid-2021 levels, down over 80% from its peak.

c) The Interest Payments on US National Debt are on pace to surpass Defense in 2024 as the 3rd largest Federal Government expenditure. Only Social Security and Medicare are forecasted to be higher over the next decade.

d) The number of $100 bills in the US has more than doubled over the last 10 years, faster growth than any other denomination. There are now over 4 billion more $100 bills in circulation than $1 bills.

e) China’s current population of 1.4 billion people is projected to fall to 525 million by the end of 2100, a 63% decline (see video discussion).

And that’s all for this week. Have a great week!

-Charlie

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